Representatives of the title insurance industry called the Biden administration’s pilot program waiving some land title requirements, “bad politics, bad process and bad policy.”
Unveiled last Thursday, the program allows mortgage lenders to sell certain low-risk refinance loans to Fannie Mae and Freddie Mac without a corresponding lenders’ title policy or attorney opinion letter (AOL).
While the White House touted the program as a way to reduce closing costs for homeowners, staff from the American Land Title Association (ALTA) said it does not increase affordability for those in need during a media briefing the following Tuesday.
“Low-risk ultimately translates to high income,” ALTA CEO Diane Tomb said, going on to call the Biden administration’s announcement purely “a political gesture” offering a false promise to homeowners while exposing them and lenders to financial risk.
“This waiver would do nothing to expand affordable homeownership opportunities to those in need,” Senior Vice President of Public Affairs & Chief Advocacy Officer Chris Morton said. “It will be targeted to higher wealth homeowners with substantial equity on their homes.”
Industry trade groups like ALTA and the Mortgage Bankers’ Association (MBA) have long-opposed title waiver propositions, including a similar 2023 program by the government-sponsored enterprises (GSEs) which was abandoned due to concerns. Opponents say the program essentially turns the GSEs into a de facto title insurer, which they were not created to be.
“This pilot is simply a bad idea– it’s bad politics, bad process and bad policy,” Tomb said. “Fannie Mae is not regulated to do title insurance. There's a lot more risk to this than people understand.”
MBA President and CEO Bob Broeksmit praised some of the housing reforms announced in the President’s recent State of the Union address, including expanding Low-Income Housing Tax Credit (LIHTC) allocations. However, Broeksmit made it clear that the association is not in favor of the title insurance waiver program.
“MBA has significant concerns that some of the proposals on closing costs and title insurance could undermine consumer protections, increase risk, and reduce competition,” he said.
The Federal Housing Finance Agency (FHFA) has endorsed this latest pilot, which regulators claim will save homeowners up to $1,000 in closing costs– substantial relief as mortgage rates decline and more homeowners seek to refinance. Federal officials cited an independent analysis indicating that title insurance typically pays out just 3% to 5% of premiums in consumer claims, compared to over 70% in other insurance sectors.
Title companies have publicly defended their payouts, saying their costs are incurred upfront to prevent claims in the first place.
“We continue to see a lot of the misconceptions about title insurance floated out in the public,” ALTA General Counsel Steve Gottheim pointed out. “The people peddling those misconceptions– the people at the GSEs using them to promote this pilot– should and do know better.”
ALTA representatives went on to assert that title insurance is necessary in a refinance transaction, despite what the introduction of this program suggests.
Fitch Ratings does not expect the program to impact title insurer ratings, saying in a statement, “The Title Acceptance Pilot as approved would initially apply to a very limited number of refinance transactions, while still allowing lenders to ensure clear title through a title insurance policy or AOL. The pilot would not impact the homeowner’s ability to purchase their own title policy or AOL. The ultimate usage of this product and the impact on title insurance policy issuance and premium volume remain uncertain.”
